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Saturday, September 30, 2017

Trying to leapfrog competition with innovation in place of good management is almost always bound to fail.

One of the problems that has plagued American companies for the last few decades has been weak management. Managers of American companies are unwilling or unable to address underlying cost issues in manufacturing, which makes them uncompetitive with foreign manufacturers. In particular, they are unwilling to confront the unions and cut excessive wages and benefits as well as eliminate restrictive work rules and lavishly gold-plated pensions and health plans.

Since they are unwilling or unable to deal with the unions, they look for technological solutions to management problems. The Chevrolet Vega is a case point. In 1972, General Motors was coming out of a brutal strike with the United Auto Workers. The company was losing a lot of money because they weren't making any cars. When I was at General Motors Institute, our professors told us at every five minutes another Chevrolet Caprice came off the assembly line and that was another $5,400 worth of car to sell.

So, if the union went on strike, we'd be losing $1,000 a minute at each assembly line. The underlying message was to do anything and everything to appease the union and union members, which we pretty much did. When I worked at New Departure, we had a list of requests by union members as to what changes they wanted made to the contract. Some of them were patently ludicrous. One worker submitted the idea that the company should provide at least two free beers a day to each employee. This is the sort of mentality we are dealing with, when it comes to unions.

In the 1950s and 1960s, small foreign cars became very popular in America. General Motors initially attempted to confront this threat by building the Corvair, which was a very complicated vehicle and was expensive to build. It had a cast aluminum air-cooled engine much like the Volkswagen.

Of course Volkswagen could make such a complex car inexpensively due to the exchange rate of the down as well as their lower labor rates at the time. Today, their labor rates are higher and exchange rates are not as favorable, which is why they opened the factory again in the United States, and why most "foreign" cars have moved upmarket into luxury territory.

Ford took an easier route, building the Falcon, which was basically a scaled-down version of their full size car. It was cheap and simple and easy to build and Americans flocked to it because it had a lower price. General Motors followed suit with the Chevy II, and Chrysler did the same thing with the Plymouth Valiant and Dodge Dart.

But, by the late sixties a new generation of inexpensive imported cars were coming from Japan, and the big three automakers knew they had to do something, as the muscle car era was being choked off by both emissions and insurance. The gas crisis of 1973 had yet to materialize.

GM realized they couldn't make a small car like a Toyota Corolla or Corona and compete on price, based on their labor infrastructure. They felt they needed to do a "Hail Mary" pass in technology order to produce a car far more cheaply than the Japanese could. Or that was the thought, anyway.

GM tried all sorts of esoteric things to nip away at costs. The Vega would be shipped vertically in special rail cars so that an additional five or six cars could be put on each rail car to reduce shipping cost. In order to do this, the battery had to be mounted at an angle so it wouldn't spill acid all over the inside of the engine compartment.

Of course the biggest technological leap of faith was the engine - which used a high tectate silica die-cast engine block. It was a long stroke engine that rocked back and forth in the engine bay like a hay baler, and never idled very smoothly. Unfortunately, they couldn't get it to work quite right, and resorted to using a cast iron head with the aluminum block, which had two different coefficient of thermal expansion. Once overheated, the Vega engine would warp the head, and it would seize the engine, usually it about the 70,000 mile marker.

Oddly enough, BMW had better luck with this technology decades later, although BMWs have been known to blow up on occasion, particularly when they are overheated. If you have a BMW and it starts to overheat, my strong suggestion is to pull over right away before you spend an awful lot of money ona brand-new motor.

But of course, these technological "Hail Mary" passes were not enough to cut costs on the Vega to make it competitive with the Japanese. So they resulted of traditional cross-cutting this methods. For example the cheapest possible narrow 13" tires were put on the ca,r which made it handle like hell, and ride like shit. The inner fender liners were removed from the front, which ensured they would rust out within three years, as my mother's car did.

The interiors were cheap, and lesser-quality materials were used throughout, making them less competitive with the Japanese , who provided more value for the money at the time.

And finally, they resorted to the oldest trick in the book - to speed up the assembly line and crank out more cars per day. The infamous Lordstown, Ohio assembly plant, where the Vega was produced, already had a lot of labor strife, which was mostly staffed by young men who are more prone to being hotheads. When the line was sped up, the quality went down and the workers got frustrated and called wildcat strikes.

The end result was more labor trouble, and poor assembly quality, which completed the shit car triumvirate of poor design, poor quality of materials, and poor assembly quality, which always ends up reducing a poor car.

It would take several decades and the bankruptcy of General Motors for management to finally be in the position to confront the unions. Once the company was bankrupted, they had the leverage to force new union work rules, appropriate wages, and also offload the unfunded pension liabilities. Although General Motors is doing better today, they are once again heavily reliant on pickup trucks and large SUVs for their profit center. As we saw on the recession of 2008, once these products stop selling, the company goes into the red rather quickly.

Unfortunately, many other companies have tried this technological breakthrough technique to overcome basic management problems. Rather than cut costs, cut overhead, and confront labor directly - and work with the unions to reduce costs and show them that outrageous salaries, restrictive work rules, and lavish pensions cannot be supported indefinitely, they try to leap frog the competition with some sort of new Gizmo or manufacturing technique which they think can reduce costs.

The end result, like the Vega, is usually a fiasco. It just simply isn't possible to cut costs with half-assed engineering solutions. Engineering by its nature is a business of incremental savings here in there. You can't just cut the cost of a product without affecting its quality. And neglecting to address the real underlying issue - high overhead in American factories - is simply putting one's head in the sand.

And yet I have seen this same thing happen again and again at other companies I workef for. And I see it happening in the marketplace even today, as old line companies are trying to find desperately try to find new techniques to save money to try to overcome what are fundamentally classic management problems.

The big problem with the technological "Hail Mary" approach is that even if it did work - which it usually doesn't - is that once you start using it, and it works, your competition will adopt the same exact technology and you'll be right back where you started - as their labor costs at already far less and they will be able to produce a product for less than you can make it.

You can go back to the drawing board and try to find another "Hail Mary" technological breakthrough, but each successive breakthrough is harder to achieve, if indeed any of them achieve substantial savings at all. Eventually you have to confront the beast - your high overhead, your obsolete equipment, your overpaid union workers, your bloated pension plan, your gold-plated healthcare, restrictive work rules, your lack of productivity - and of course, bloated management.

These are all very hard things to do, though and require incremental changes over and over and over again in a never-ending battle with overhead. Management likes sexy solutions like engineering breakthroughs which sound like so much more fun than going head-to-head with your local union rep.

So what's the point of all this? Well, several things. First, if you work for a company that is proposing using some technological breakthrough to cut their costs and thus compete with companies who merely use the age-old technique of effective management, you might want to start thinking about finding a new job. Granted, it took decades for General Motors to eventually go bankrupt, but in the interim, could be a very uncomfortable place to work as an engineer, particularly if you were assigned to such projects as the Vega.

Second, if you are investing in a company that is trying to use this "Hail Mary pass" technological breakthrough technique to compete with lower-cost competition, you might want to think about selling your stock. These technological breakthroughs work sometimes, but usually in the minority. And as I noted, the competition can usually use the same technology as often it is hard to protect these types of things with patents and the like.

A third thing is, if you work for a company in or thinking of joining a union or you are in a union, and you think you're going on strike, think very hard about where this is going. Sure, your company might stay in business for 10, 20, 30 years or more even though their cost of overhead is twice that of their competitors. But eventually something will have to give and that might give just the time that you want to retire. At that point the company goes bust and your pension plan may be taken over by the government, and you get $0.40 on the dollar.

The workers at the Nissan plant in Canton, Mississippi recently voted overwhelmingly to reject the United Auto Workers Union. It's not that the UAW didn't offer them a better package of benefits and wages, which no doubt they probably could have obtained if they'd gone out of strike. However, the workers realized that a job with slightly lower pay is better than no job at all. And they realized that if they choked off the lifeblood of their own factory, they were basically shooting themselves in the foot. People in Mississippi are a lot smarter than we give them credit for.

If people make bad decisions in life, should they have to live with them, or should we bail them out? How does this work to encourage people to make better decisions?

One problem with the press, particularly on the Left (Washington Post, New York Times) is that they love to publish "oh woe is me" stories about how people are victims of circumstance, when if you scratch the surface, they are really more victims of their own malfeasance. The Washington Post published such an article recently, that profiled some older people who are "work camping" at RV resorts to make ends meet.

These are folks who have little or nothing saved for retirement. They sold their homes, bought RVs, and stay for free at RV resorts, making $10 an hour mowing lawns, cleaning toilets, and working at the front desk. We meet these folks all the time in our travels. Not all are impoverished, though. A friend of mine and his wife do this, even though both have very generous government pensions. He just likes to work and be useful (she, less so, but goes along with it to please him). Some folks like to stay busy.

But others have no choice, as they failed to save or plan for retirement, instead choosing to live for today and "just not think about" tomorrow - a plan many people are still using even now, with disastrous results. The problem, of course, is that as you get older, it is harder and harder to work, and eventually you will not be able to scrub toilets or stand behind a desk all day or even ride a lawn mower. What happens then? It gets messy, to say the least.

And it is interesting, for us, as we are living in an RV (much smaller than the ones shown in the article!) for three to four months a year, by choice. We can afford to retire early and travel a lot by being careful with our money and thinking long and hard about purchasing decisions. We also made sacrifices early in life to put money aside and are now reaping the rewards of those good life choices.

The folks in the article, less so. One couple claimed that they thought Hillary would not help them much, so the husband voted Libertarian and the wife left her ballot blank. Another couple voted for Trump as they felt he would help "the forgotten man" - and that isn't exactly working out for them. Neither Trump or Hillary is about to dump $500,000 in their 401(k) plan, but they would be more likely to see expanded health coverage, better social security benefits, and other improved aspects of the "safety net" under Hillary than Trump.

But then again, these are not very smart people. Decent people, to be sure, just not very clever. And so they are stuck in the position they are now in, largely because during their working life they chose cable TV and new cars over saving a few dollars a week into an IRA. And maybe there is no way around this - maybe there will always be people who make poor life choices (in every sense of the word) which is why we have a safety net in the form of Social Security.

And it is why people who need that safety net the most end up voting for the party that keeps saying the safety net should be abolished. They are not very bright. They vote for people who want to abolish what little safety net they have, but promise to prevent their granddaughter from getting an abortion or their grandson from marrying his boyfriend.

But it raises the question - in any society, shouldn't people reap what they sow to some extent? This may sound "harsh" but if we reward idiotic behavior or poor decision-making - at the expense of people who make better choices, such as those who scrimp and save, are we not punishing those who make the better life choices?

I say this only because I have friends who are "oh woe is me" and tell me how "lucky" I am, while riding in their leased brand-new monster trucks. One friend confides to me that he will have to work "until I am 75" and says this from the cab of his new 4-door Toyota Tundra with all the options and accessories. People assume that having a new car and cable TV is just baseline existence, and that if they can't afford these things, somehow they have been tricked and cheated.

I am not providing the answer here, just asking the question. In my mind we should provide a "safety net" for those who make bad choices and we should educate those who are less intelligent to make better choices. But I am not sure we should be throwing money at the guy who says, "fuck health insurance or a 401(k), I'm buying a new Harley!" at age 25, and ends up paying for that poor life choice later on in life. He is not so much a victim of circumstance as he is a victim of his own bad decisions.

And if you are asking me to take money from my meager savings to pay him, well, then it gets really personal. If people want government money (taxpayer money) then we should have a say in how they spend it. But of course, that opens up a whole 'nuther can of worms.

I was reading an article recently about aircraft leasing. In case you missed the recent news, there is a huge controversy between Airbus and Boeing for control of the commercial airliner market. And upstarts like Bombardier and Embraer are edging into their market space. A recent decision by the International Trade Commission, which I discussed in a previous posting, could impose 200% duties on imported Bombardier aircraft which could result in a trade war which will bring down our economy.

But that's not the point of this posting. They were interviewing the head of one of the largest aircraft leasing companies in the world, and talking with the CEO of the company, Mr. Steven Udvar-Hazy. If you are aircraft fanatic, the name rings a bell, as it is the name of the Smithsonian's aircraft museum at Dulles airport, the Udvar-Hazy annex. Clearly, this is a guy who loves airplanes and has a shitload of money. (Good for him!).

And it struck me that we are living again in the Gilded Age much as we did in the late eighteen hundreds and early nineteen-hundreds where a few powerful people control much of the country's industries or indeed, the world's wealth.

I live on Jekyll Island, which is now a State Park open to anyone in the public. But in our historic district are the remains of the Jekyll Island Club, which was once the exclusive resort of the world's wealthiest people. In the late eighteen-hundreds and early nineteen-hundreds, while at club was in session from December through March, one-sixth of the world's wealth was represented there.

South of us is Cumberland Island which was settled by the descendants of the Carnegies, who made their money from their Uncle who controlled the steel business in its entirety. In that era, Rockefeller controlled the oil, JP Morgan controlled the banks, and other famous names controlled every aspect of our nation's economy

Back then they called them Trusts. There were oil trusts, railroad trusts, steel trusts and every other nature of trust. They locked up the economy and controlled huge portions of it. They prevented newcomers from entering the business and they pushed out marginal players by either crushing them through unfair competition or by simply buying them out.

Today, you can go visit the fancy and expensive mansions and homes of the people who ran these trusts. In addition to the historic district of Jekyll Island, you can travel up the Hudson and see the Mansions of the Rockefellers and the Vanderbilts, or perhaps venture to Newport, Rhode Island to see more of the same The era of the Trusts came and went, and these mega-wealthy titans of industry eventually lost their influence. The question is, why? And the question is do we have similar pultocrats with us today?

What led to the demise of the Trusts and the mega-wealth of the turn of the century is an interesting question, and there are many answers. Some trace the demise of the mega-wealthy to the imposition of the income tax at the start of World War I. Before that time, you could earn as much money you wanted to, and largely avoid paying any taxes. The government funded most of its programs through import tariffs and other sorts of taxes, but income itself was not taxed (Sounds like Trump's new tax and tariff plan, no?). This allowed people to accumulate vast amounts of wealth and pass it on from generation to generation.

By the end of World War II, many of these wealthy people had dissipated their wealth. As I noted before, wealth tends to dissipate with each successive generation as an increasing number of children, grandchildren, and great-grandchildren divide up the pie and then fritter it away. After World War II, Mark's father bought a mansion in Westchester County and operated it as a retirement home. He was able to buy the property for very little money because nobody could afford to keep up such a place, and the wealthy people who built it basically abandoned it.

Income taxes in the post-war era had marginal rates over 50% - as high as 70% in some cases. And we talk about today's rates as though they were onerous. Oddly enough, it was a Democrat, John F. Kennedy, who proposed the first cuts in marginal rates, and since then, the GOP has taken up tax cuts under its banner. The problem is, of course, you can only cut taxes so much before government runs out of money, as they are finding out in Kansas. Kansas instituted a tax program that allowed people with Subchapter-S companies to basically avoid paying income taxes. Needless to day, even the paper boy in Kansas now has a Subchapter-S company (they are not hard to form - we had three at one time). When government creates incentives, people jump through hoops. But I digress...

Today, a wealthy investment banker who works on Wall Street now owns this estate and it is once again the property of the well-to-do. It seems we have come full circle. While income taxes for the very rich are at all-time lows (and the very rich pay capital gains taxes, not income taxes per se), property taxes are still very steep. But for folks making hundreds of thousands a year (or indeed, even millions), a five-figure property tax bill is merely part of the cost of doing business.

Similarly, the small town of Cazenovia New York, where I grew up, was once a vacation resort for the very wealthy from New York and Boston. Massive estates lined the lake, and captains of industry and their families would Summer there with their retinue of servants, the latter of which actually settled the village.

By the 1960s and 1970s, the very rich had left, and their servants were now living in many of these Mansions. I recall a friend of mine whose parents were devout Irish Catholics and descended from the servants of the very wealthy, now living in one of these Mansions. They had 12 children and everyone had their own bedroom. We would skateboard in the ballroom and play pool there. No one could afford to keep up these places much less pay the utility bills. It was very cold in their house in the winter!

Again, today, these mansions are once again owned by the very wealthy, and although they have sold off many adjacent lots to reduce their tax burden, they are once again being restored to their former glory. We have, in a way, returned to the Gilded Age where the very wealthy are separated from the rest of us by a huge gap in income and wealth.

In the 1800's and the early 1900's we knew all the names of these plutocrats. The Rockefellers, the Carnegies, JP Morgan, and others. These were people who had manipulated markets to make themselves wealthy, or famous inventors or industrialists such as Edison or Ford who made their fortunes in industry.

Today, there are a different group of plutoctats with different names. Names like Gates, Bezos, Zuckerberg, or the Musk. Or there are mega-investors like Mark Cuban or the Warren Buffet. Of course, today most of these plutocrats are keen to hide their identity, behind investment capital firms and other corporate shells. Just as the members of the Jekyll Island Club loved to come to this remote resort to live in "splendid isolation", many of today's plutocrats like to keep a low profile, for the most part, to prevent the sort of resentment that drove their spiritual ancestors out of business.

We know many of these new plutocrats by the names of their venture capitalist firms, who take companies private and load them up with debt. Or we know them as "activist investors" who buy chunks of stock, garner a seat on the board, and then force companies to make quick profits, often by dividing them up into small chunks which are sold off to other venture capitalists.

But in addition to the income tax, as well as property taxes, there were other factors that curbed the excesses of the Trusts and the plutocrats of the previous era. Trust-busting and reformist politics became the rage in the early teens and twenties. Teddy Roosevelt, which some cite is a spiritual predecessor of Donald Trump, was keen on breaking up the Trusts and distributing wealth more evenly among Americans.

Antitrust laws were enacted which broke up many of the monopolies that were dominating American industry. The most notorious of these was Rockefeller's Standard Oil which is broken up into a number of regional companies such Socony, Esso, Mobilgas, and so on. Ironically, Standard Oil has has been recombined today as Exxon-Mobil. Similarly, the Bell Telephone Company was broken up into the "Baby Bells" but today is re-consolidated as AT&T. IBM fought antitrust laws for years, until it finally became irrelevant in the computer market.

It seems that over the years, we've come to accept that monopolies are part of life or at least fail to realize the impact they have on society.

Of course, today, one wonders how antitrust law could be applied to modern technologies and companies. Should Facebook be broken up into five separate entities? Would that even work online? Cable companies and wireless companies are forever combining and dividing and going through the motions of appeasing the justice department and antitrust regulations. Of course each new level of technology obsoletes the previous one. Who cares if the cable companies are combined, when we are all watching television online?

Of course not everything is a perfect parallel of the past. Donald Trump is no Teddy Roosevelt, and he seems more inclined to protect the interests of the plutocrats than to bust up the modern Trusts of today's society. The Republican party today seems more interested in cutting the taxes of the very rich rather than equalizing wealth as it did under Teddy Roosevelt. Of course, Roosevelt was succeeded by Howard Taft who reversed many of his initiatives, much to Roosevelt's dismay.

And today, maybe we are seeing the same thing in the Republican party - a division between the old-line Republicans and the Trump supporters who voted for Trump thinking he would help out "the forgotten man" by giving tax cuts to the very wealthy. Funny how people can be fooled so easily.

Thursday, September 28, 2017

A kiln is, in a lot of ways, like a light bulb. It lasts only so long before it burns out.

We just bought a new kiln - a Skutt 1027-3. It is capable of cone 10, if you know what that means, which is fine as we are firing to cone 6. That's the first thing you learn about kilns - you never buy a kiln that tops out at cone 6, if you plan on firing at cone 6 - it will barely make it to that temperature, and only after a long period of time, and the result is your glazes will all turn brown.

Cone, of course, is more than temperature, but a function of temperature and time. Early kilns had no controls per se, but peepholes that you would look through to see the ceramics firing. People put little pyramids of clay, known as cones, near the peephole, and when the cone bent over, you know you had reached the proper firing point.

Later kilns had a "kiln sitter" with a small device that resembled spring-loaded tines of a fork that would hold a cone. When the cone bent, the tines moved and and shut off the power, allowing the kiln to power down. These worked pretty well, too.

But electronic controls allow for greater control - you can ramp-up your temperature in stages and hold temperature for a period and then allow for gradual cool-down. The problem is, of course, you have to experiment with different programs to work with different glazes. And potters often keep their preferred programs - like their glaze mixes - as state secrets. If you ask them, like any good chef being asked for a recipe - they will be sure to leave out key ingredients and steps. You don't just give away your intellectual property when it is so hard-fought and hard-won!

But a kiln (and we are talking electric kilns here) is a remarkably simple device. It is little more than a pile of bricks, some electrical coils, and a control box. The very earliest kilns - wood fired - were literally a pile of bricks that were built up and pottery placed inside. They would be fired for days and then disassembled and hopefully beautiful pottery would emerge. Modern electric kilns are an arrangement, usually hexagonal, of fire brick held in place by stainless steel bands. Over time, these fragile and frangible bricks crack or are damaged and eventually you have to repair or replace them. You can use kiln wash and other products to try to seal the kiln and repair the bricks, but it is often an effort in vain.

The electrical coils go around the inside of the kiln in rows and are like the filament of a light bulb - each firing reduces the number of remaining firings left before you have to replace these elements. This is particularly true if you are "high firing" at cone 6 and above. The kiln will eventually burn out and you have to rewire it, which is a boring but not difficult task.

But speaking of burning out, even though the bands are made of stainless steel, these kilns do rust over time, particularly where the band clamps attach with spot welds. So these things do have a finite life span, even if you can re-wire them with new elements and replace individual bricks and patch broken ones.

For this reason, used kilns are not worth a lot of money. We've had about four so far - this new one will be our fifth and our first brand-new one with full electronic controls. Our present kiln is rated for cone 6, but really won't make that temperature, so it is only good for bisquing. It has an electronic control for ramping up heat, but no ramp-down like the new Skutt 1027-3 we are buying.

A used kiln can be a good deal for someone doing low-fire pottery and glazes. Many low-fire glazes approach the quality of high-fire (but of course don't have the snob appeal). And for folks painting plates and the like, a low-fire is just fine. And older kiln that might not go to cone 6 anymore might have a lot of life left in it for low-fire uses.

But don't pay a lot of money for one. A brand-new kiln, like the one shown above, is about $2200 to $2500 plus tax and shipping. We are picking one up from Clay King on the way back to Georgia, and thus avoiding both tax and shipping. Used kilns? Worth maybe a couple of hundred at best - maybe $500 or so if they are nearly new or re-wired.

Our first kiln was given to us - actually two kilns, one being a small "test kiln" that ran on 110V. Both were Kress kilns, and the larger ran on 220V and drew about 45 amps. That is something to think about when buying a kiln - does your house have the juice to run it? It is like adding an additional dryer, or hot water heater, or HVAC unit. Some folks put a kiln in their garage and plug it into the dryer receptacle. I guess that could work, but bear in mind these things get hot, and many garages have things like lawnmowers and gasoline cans in them. Precautions need to be taken!

The Kress kiln worked fine - it had a kiln-sitter and Mark made some good pots with it. We got a larger kiln from a friend for $300 as I recall, and it worked OK - it also had a kiln-sitter. But it was in bad shape - a multi-piece unit that leaked like mad. At night, you could see red light shine through the cracks between the kiln bricks.

The last kiln we bought, (Evenheat?) with the partial electronic control, we paid $450 for, which was a little too much. The owner, who ran a pottery painting studio, told us it was little used. But when we tried to fire it, it would not make temperature, and we ended up rewiring it with new coils. It worked fine after that, but it was not really suited for high temperature (cone 6) glazes. Mark used it for bisquing and low-fire glazes only, relying on the guild kilns for cone 6 firing.

Of course the problem with using guild kilns (even though it is free and the electricity is free) is that you may not have control over temperature programming. What is a good firing regimen for one glaze may be horrible for yours - turning all your pottery into baby-puke brown. Unless you are the "kiln-master" and in charge of programming, it can be like throwing dice.

Plus, when the rains come, the guild kilns get flooded and destroyed, so it seemed like a good time to get a really good Cone 6 kiln of our own.

But again, a kiln is like a light bulb - the more you use it, the faster it wears out. You are not buying a piece of capital equipment, so much as like a set of tires, you are buying a roll of tape - and unwinding it with each use. Each firing means one less firing left, before a rewiring job is needed, and each rewiring job is one less rewiring job left in the life of the kiln. Eventually, you end up with a rusty collection of cracked firebrick, a flaky controller, and coils popping out of their tracks, and it is time to start over again.

Tuesday, September 26, 2017

Why has the homebuilding industry remained largely unchanged in over a century, when so many other industries have adapted to new technologies? Can you tell if this is a modular or stick-built home? (It is the former).

The media is rife with articles about how robots are going to take over the world or artificial intelligence is going to supplant human beings as the next stage of evolution. We are told that blue collar workers are being laid off in droves because robots and machines have taken their place and nothing is ever going to change this.

And maybe this is true for industries making microprocessors and semiconductor chips, or automobiles or air conditioners and other manufactured products. But one industry stubbornly remains in the 20th century, if not in the 19th century, in terms of technology, labor, and assembly costs. And that is the homebuilding industry.

A reader notes that home construction techniques have remained little changed in well over a century. If you've ever worked on an older home, you will note that the basic construction techniques are pretty much the same as used today. Houses by and large are stick-built using two-by-fours and then covered on the inside with sheetrock or plaster, and then sided on the outside with clapboards or shingles, and then roofed with a shingle roof of one sort or another.

Certainly there have been some improvements over time. Circuit breakers have replaced the old screw-in fuses, but most of the wiring of an electrical box or electrical outlets is pretty much the same as it was in 1920.

And houses today are built much as they were a hundred years ago, one stick at a time by individual laborers who assemble at the job site and build a house from the ground up one board and one nail after another. One would think that this would be a industry ripe for automation. But several factors have conspired to prevent automation and improved assembly techniques taking over the housing industry.

And it has not been for a lack of trying. The manufactured home industry has been building trailer homes, otherwise known as mobile homes, for decades. However these are viewed as depreciating commodities, which decrease in value over time, unlike a stick-built home which generally appreciates in value. Manufactured homes had morphed into double-wide trailers and now into modular homes which are largely indistinguishable from stick-built homes, other than some telltale indications of the modular assembly techniques such as overly thick walls on the interior where the modules join.

And despite the fact that many modular homes are indistinguishable from stick-built houses, and in fact are often nicer and more elaborate than some stick-built homes, there is a stigma attached to manufactured housing. When we were in central New York, we looked at several houses which were modular and the real estate agent was quick to point out that this was a modular home. They were required to disclose this if it was a defect in the property. Moreover, Banks seemed less willing to loan on modular properties, and often required greater down payments, which discourages people from buying modular homes.

It would seem to the average individual that would make more sense to build houses in modular panels or blocks in a factory where the cost of labor is lower and overhead is less, and then assemble them on site. And in fact many companies have tried to do this with some limited success. They face a lot of headwinds not only from local regulators but also from unions and laborers. Let me give you two examples of what I mean.

My parents built a house near Saint Michaels, Maryland as a retirement home. They built a modest house as it was all they could afford, using stick-built techniques. Their neighbor bought a lot next to them and contracted to have assembled a very large and elaborate modular home from a company called Nanticoke. It was a beautiful house - or it would have been, if the labor hired to assemble it hadn't sabotaged the entire project from the get-go. From the Carpenter's point of view, the modular home is taking food out of their mouths and taking jobs away from them and their fellow workers. So they have little incentive to properly assemble a modular home and in fact may subly sabotage such a construction.

The house in question, which was built facing the Chesapeake Bay with a beautiful view, comprised over eight modules. The workers came and assembled the first six modules which comprised a two-story house. The last two modules were for the center part of the roof which covered the center of the house. Rather than put these last two modules in place before the weekend, they decided to call it quits early on Friday, and put a blue tarp over the massive hole in the center of the house, and went off fishing for the weekend. Priorities.

Well you can guess what happened, they had an amazing tsunami of a storm that weekend which dumped inches of rain which quickly overwhelmed the blue tarp which was hastily tacked over the hole in the center of the house. Water poured into the structure destroying the entire interior which was prefabricated down to the sheetrock, outlets, and even wallpaper. The hardwood floors, which were pre-installed is part of the modules, all warped up and twisted. The entire house had to stripped down to the studs and rebuilt as a stick-built house, which is what the carpenters probably wanted in the first place. While insurance covered most of the cost, it delayed construction quite a bit and with the deductibles and everything the homeowner came out way behind.

You could chalk this up to massive incompetence or you could chalk it up to subtle sabotage. I believe it was the latter, not unlike the assembly line workers I saw at General Motors who sabotaged the cars as they went down assembly line to "get even" with their employer. Of course, what they were doing was shooting themselves in the foot as the customers were the ones who had to deal with the defectively assembled cars, and these were people who willingly rushed into the arms of Toyota, Honda, and Nissan whose workers didn't feel the need to destroy their own product.

A second example illustrates why prefabricated homes face such a strong headwind. Some friends of mine decided they want to build a house on the lot they had facing one of the Finger Lakes. However, they didn't have a lot of money to spend and they were looking for alternative construction that would be less expensive than stick-built homes. They contacted a company in Canada which made panelized homes. These were flat panels which were shipped to the site and then assembled to build a home. In other words, there would be four walls and then roof panels, and the whole thing would be bolted together and it would be indistinguishable from a stick-built home.

They put down a non-refundable deposit on the house, and then set out to find a contractor who would assemble the house on their site. In retrospect, they should have found a contractor first, but they assumed that somebody would be willing to assemble the home at a modest cost. What they found instead was every contractor they talked to quoted them a price that was equal to or exceeded the cost of stick building the same house. There was an unwritten rule - a gentleman's agreement - among the various contractors and home builders in the area that they would not allow this sort of panelized or modular construction into their space. As you can imagine, they felt that this type of construction would take away jobs and take food off their table. My friends became discouraged, as the cost of stick building a house was something they couldn't afford and now they had put down a deposit on the panels and had no one to assemble them. They end up building a pole-barn type structure which is an inexpensive way of building a home with a limited foundation.

But their experience illustrates the problem. The carpenters, union or non-union, are going to stand with solidarity with each other and prevent automation for taking away their jobs. And so far they've been pretty successful in doing so.

Compounding the problem are local zoning laws and building codes. We don't really have national zoning or building codes in this country, although most jurisdictions follow very similar building codes that are set to national standards. However many jurisdictions have unique features in their building codes which must be adhered to, often at considerable expense.

The problem is, the local inspectors are trained to understand stick-built houses of yesteryear, and they are uncertain how to inspect and certify a modular or panel-built home. As a result, you are likely to face a lot of issues with the home inspection during construction as they will find problems where there are none. As I noted in previous postings, often this is more of a political problem that a legal one, if you try to fight them on the legal basis you will lose. I recounted before how an architectural review inspector insisted I put the slate roofing on the porch of my office building, even though the original asphalt shingles from 1933 were under three layers of curling shingles on the porch. I had a similar experience with inspector with our swimming pool who failed inspection because I had 24 volt lawn lights, six and a half feet from the edge of the pool, when they should have at eight feet. I quickly picked them up and move them to 8 feet, but the inspector insisted that the inspection be failed at a new inspection be called a week later. I called a new inspection in the new inspector came in and laughed at the idiocy of the previous inspector. But this is the nature of building code inspectors - they are failed Architects, failed Builders and generally failures in life who take out their aggression on those who are actually trying to accomplish something.

Actually, most government works that way. Those who cannot do, teach. Those who cannot teach, get jobs with the government.

Perhaps if Jeff Bezos or Elon Musk attacked the Housing Industry, they could institute some changes, but I am skeptical. Because in addition to the unions and even a non-union workers and the building inspectors you have to deal with organized crime, and organized crime is rife in the building trades. And this is particularly true in blue states.

In addition to the lack of automation in housing construction, the techniques used in building homes really have remained unchanged for so long, and are not really ready for change. I realize this every time I rewire an outlet, and think of myself what a shitty engineering job the american electrical outlet is. Many of them are made of steel, with the electrical outlet screws mounted a mere fraction of an inch away from the sides of the box. It doesn't take much to move the outlet from one side or the other and have it short out against the steel casing. For this reason, I tend to use plastic boxes whenever I'm installing a new electrical service. However, the basic technology hasn't changed in over a hundred years, with wires being run into the box and then stripped and then shoved into screws and somewhat haphazard manner. Or else wires are twisted together with a big wire nut and jammed back the box where they barely fit. As electrical engineer, this strikes me as a pretty shitty arrangement on that could be improved upon.

And the way we run wiring and plumbing is also sort of scandalous. Everything's hidden behind sheetrock walls and if you need to access it you basically have to smash the wall and then rebuild it from scratch - as I had to help a neighbor do, when their pipes broke. A reader writes that maybe access panels in the form of wainscoting could be used at the bottom of a wall and be readily removed to access wiring and plumbing. If a house floods such as in the recent hurricanes, the wainscoting to be removed the wall dried out and then the wainscoting replaced at a minimal cost. It certainly sounds like an easy way to repair a hurricane damaged house.

Regardless of what sort of technology is used, it certainly could stand some improvement. We are still using wooden framing for the majority of construction of homes in the United States. One would have thought we would have moved to galvanized steel studs a long time ago as they are more dimensionally stable, Fireproof, and more resistant to rot and decay. But even commercial buildings such as hotels and retail space are often made of two-by-fours and plywood, much to my amazement. We are building houses today in 2017 using technology that was developed in 1917.

I like I said, there's a lot of headwind here and it would be challenging even for someone like Elon Musk or Jeff Bezos to challenge this industry. It would be easier to build rockets the moon than it is to redesign the American home. We have a better shot at seeing hyperloop in our lifetime that we do seeing homes redesigned from the ground up.

The housing industry is stuck in another century. And no "app" can readily fix this, either.

Wouldn't it make sense to have health care coverage depend on which State you lived in and which Senator had more clout to hold out their vote? Makes sense to me! And Senate Republicans seem to think so too!

Senate Republicans have announced a new healthcare plan that surely will pass Congress this time around. In case you missed it, the previous three attempts to reform, replace, or repeal Obamacare have failed, as one or two senators have balked at the half-assed attempts at repeal, and thus refuse to go along with plans that would basically leave scores of people uninsured.

This time around, though, Senate Republicans are resorting to the same old pork-barrel techniques to get people to vote for a half-ass plan. For example, Lisa Murkowski, the senator from Alaska, objected to the latest repeal effort as the majority of her constituents are on Medicaid and the withdrawal of Medicaid expansion would leave half the state uninsured. So Senate Republicans craft an amendment to their half-assed repeal they would exempt only Alaska. Well, it doesn't say "Alaska" per se, but any State with more sled dogs that people. Hey, that could be Montana, right? We aren't singling out one State in a pay-for-play arrangement, right?

Of course, Senators from some other states saw this and wondered what they too could get out of the deal. Why should Alaska have all the fun and they don't get anything for their vote? So the latest GOP healthcare plan to repeal, withdrawal, or whatever, has a number of interesting features tailored to each individual state.

For example, under this plan, citizens from Delaware will get free dental care but nothing else. This was the best the senators from Delaware could negotiate with their limited leverage.

Maine will continue to get expanded coverage under Medicaid, but only for injuries related to the lobstering industry. Similarly, in Georgia, citizens will be covered for any injury related to barbecuing accidents.

John McCain finally caved in and agreed to vote for the plan, provided that citizens in Arizona were 100% covered for melanomas due to excessive sun exposure. Texans, on the other hand, are completely covered for gunshot wounds, but nothing else. Oddly enough, so are residents of Chicago.

Of course, with this new GOP healthcare plan, each citizen in each individual state will have a different level of healthcare depending on what their Senator or Congressman held out for. Many speculate that this will result in folks declaring citizenship in various different states in order to obtain healthcare under this new plan. For example, if you can claim a PO Box address in Delaware, you can have your wisdom teeth removed. Then, move to Alaska for that coronary artery surgery.

Congressional Republicans defend this patchwork technique of healthcare as a sane and rational alternative to Obamacare, which attempted to provide the same level of coverage for citizens in all 50 states.

House Speaker Paul Ryan stated it succinctly, "This is the way legislation gets done, through pork barrel politics. Everyone holds out for a little taste of something for their own constituents. That was the problem with Obamacare, it didn't follow the rules. You can't provide equal coverage for everybody, every state has to fight their own little slice of the pie."

No truer words were ever spoken. What a sane and rational way to legislate!

Monday, September 25, 2017

A trailerable boat is much less expensive to own than a boat you have to pay to have hauled out.

After looking at a number of big boats in the North Country, we've given up on the concept of owning a large boat. And in retrospect, I wonder what the hell I was thinking in the first place. The problem with large boats is that once you get above a certain size, say 30 feet or so, you have to pay somebody to haul the boat out of the water anytime you need to work on it or have it serviced.

Each haul out can cost hundreds of dollars, which gets to be very expensive after a short period of time. In addition, you have to pay dockage and storage fees which can cost thousands of dollars a year - more money than most people actually spend on a boat. We were looking at boats that had $8,000 a year storage and dockage fees, which is more than I've actually paid for my first boat.

The third thing is that these large boats rarely go far from the dock if they are used at all. As I noted in my previous posting, a lot of people use these huge boats as floating condominiums. They drive up from their suburban enclaves for the weekend and wax and polish the boat and sit on the back deck and make cocktails and chat with their friends in the neighboring boats. It becomes sort of a social club and less of a yacht club. Once in a while they take the boat out for a short trip but they never usually go more than fifty or a hundred miles away from their home dock. The boat is not really used for traveling so much as it is a floating condominium.

And if that's what you want to do, I guess that's fine, although it's an expensive hobby. People do the same thing with RVs. We are staying in an RV park near Rhinebeck, New York, and most of the RV's here are park models which never leave the park. People come up from New York City and its environs and spend the weekend "in the country" in their RV, sweeping the pine needles off the roof and chatting with their neighbors and having cocktails and barbecue.

Again, this can be fun in its own way, and I guess it's a way of having a vacation home on the cheap for many people. But there is another form of RVing, just as there another form of boating, where you actually travel and go and see things. And for traveling you really need a smaller RV just as you need a smaller boat. Dragging a 35 or 40 foot travel trailer or driving a 40-foot motorhome cross-country is not any fun. You have to stick to the main highways and carefully plan each exit because you can't go over bridge that has a load limit of five or even ten tons. Worse than that, you don't want to get in a situation where you can't back up or turn around. As a result, the big rigs tend to stay to the main highways and the luxury RV resorts with the pull-through sites. They tend to miss the of-the-road attractions and smaller and more interesting things that we can see with our tiny Casita.

In one of my earliest postings about motorboating, I noted that having a trailerable boat really is the most affordable way to go boating. Actually, the best way to go boating is if you have a property on the water in your boat is parked right in front of your house or condominium. You can just step off the dock and into your boat and go whenever you want. And since you don't have to pay for dockage fees the overhead cost is pretty minimal. Of course, waterfront property is scarce and expensive.

But the next best thing is have a boat that is trailerable. With a trailer boat you don't have to pay for haul-outs. You just back your pickup truck down the ramp and put the boat on the trailer. At our local marina here on Jekyll Island, it can cost upwards of $500 a month to leave the boat in the water at the dock and perhaps $300 a month to leave it in rack storage in the barn. It costs only $40 a month to leave the boat on the trailer in the storage lot behind the barn. As you can see there is a huge cost savings in trailering.

Not only that, if you want to work on the boat, wash it, wax it, clean it, or do other maintenance, you can drag it home, park in your driveway, and work on it at your leisure. For larger boats that require haul-out, you have to pay for the haul-out fee and then pay a daily charge for storage on the outside rack where you can actually work on the boat. Granted, in some marinas, if you are a seasonal customer, you may get a number of free haul-outs for your annual dockage fee, and they may allow you to keep your boat "on the hard" to work on it for a limited amount of time without charging you. But then again you are paying $6,000 to $8,000 a year for this privilege.

The other advantage of a trailer boat as you can take it to places and go boating as opposed to being limited to how far you can travel in a larger boat. Larger boats such as the one we looked at in the Thousand Islands, get only one or two miles per gallon, if that. So you can spend hundreds if not thousands of dollars just traveling a few hundred miles from home. Not only that, since most boats only travel about 30 miles an hour or so, it can take you a very long time to get to where you're going. And while it may seem romantic to travel up the Intracoastal Waterway, many people report that it is mile after boring mile of the same sort of thing.

When we had our 27-foot boat, we kept it on the trailer when it wasn't in the water. People asked me how fast the boat could go and I said it would do 70 miles an hour - on the trailer. Also it was capable of getting 10 miles per gallon on the trailer being towed by the pickup truck. In the water, it topped out at about 35 miles an hour in about 2 miles per gallon.

If you want to go boating in Key West, it could take you days to get there even from Georgia and you'd use thousands of dollars in fuel - I know this from experience. We drove from Jekyll Island in our last boat to Fort Myers Florida, and the round trip used over $3,000 in fuel. Yes, marinas charge far more for gas than gas stations so - and you can fill up a trailerable boat at a gas station for far less.

So a trailerable boat is a much more inexpensive alternative in terms of boating compared to these larger boats, which rarely leave their marinas or go very far from them - and cost thousands of dollars a year in overhead. The question is, what kind of boat do you want to get?

Our 27-footer was a go-fast boat, capable of planing and going over 35 miles an hour. It could pull a water skier if we wanted to. It was a very inexpensively built boat though, and it did use a lot of gas. Like most boats of its type, it was powered by a converted automobile engine, this case the venerable small block 350 Chevy.

There are other, slower boats known as trawlers which have displacement hulls which are not capable of planing. They go through the water at a much slower speed, usually around eight to ten knots and actually get several miles per gallon, which doesn't sound like a lot, but in the boating world - much like the RV world - it is pretty impressive.

One of the boats were looking at is the 25 foot Ranger Tug. This is a very stout and seaworthy boat powered by a small diesel engine. It's layout is almost identical to our Casita travel trailer - very compact but very efficient in space. It may not be a very pretty boat, like our 27-footer was, but in terms of rough weather, it could handle a lot more and also last a lot longer.

One problem with this kind of boat is that they didn't make very many of them, and thus there are not many for sale. We looked at a few of them but the sticking point seems to be price. They sold for about $150,000 new, ten years ago, but many owners are asking $80,000 to $90,000 for used examples. The odd thing is is some models, only a few years old, are only asking $110,000, which tells me the older models are severely overpriced.

Usually any motorized form of transportation depreciates about 40% to 60% every 5 years depending on the make and model of the item. Based on the asking prices people are putting on these trawlers, they are depreciating less than 40% after a decade which is nothing short of astounding. They are overpriced, period.

But as I noted in my posting about Corvettes, asking prices are not sales prices. As I noted in that posting, my friend put his Corvette for sale on AutoTrader after seeing asking prices from a number of other people. However after six months he didn't have a single phone call for the car and in fact all the other cars that were for sale were still for sale on AutoTrader. Since you can leave your ad on AutoTrader indefinitely, it doesn't cost anything to leave the ad up even if there no inquiries. And people say they "want to get their price" and refused to sell even when they have some reasonable offers.

And again the same old thing with Constipated Commerce. The boat ends up not going in the water for a year and sits on the trailer, and then slowly degrades over time. The stubborn owner refuses to sell,and eventually he dies and the widow lets it go for a pittance. I guess the secret is to find that Widow and hope the boat hasn't completely rotted in the interim.

But maybe this trailerable trawler is like the Corvette - the car that nobody drives, nobody buys and nobody sells. Since people feel that selling it for anything less than what they paid for it is "giving it away" they hang on to it, and since the cost of keeping it is very low because it's on a trailer they feel they can afford the overhead (but fail to account for depreciation).

In any case, we'll just keep looking. There's really no reason to jump in feet first on a possession that really isn't necessary for our existence at this point our life, and, if purchased wrongly could be a serious detriment to our finances.

Sunday, September 24, 2017

The media is at it again, this time hyping yet another food delivery service. Walmart is supposedly testing a new food delivery service that will deliver food "right into your refrigerator". I'm not sure how this will work, whether you'll have a refrigerator that has a door that opens to the outside of your home or whether people are seriously going to allow minimum wage Walmart employees into their house while they're not there. Either way it sounds like a really bad idea.

But the story is just one in a number of stories about food delivery which seems to be part of a national obsession which strikes me as yet another bubble. The Washington Post which is owned by Jeff Bezos who owns Amazon, publishes one breathless article after another about how your fresh kale will be delivered by drone to your home now that Amazon owns Whole Foods.

There are a number of problems with that story of course. First of all while a few people are eating fresh kale (and of course a lot of people in the South have been eating it for years) most Americans are still wolfing down burgers and french fries, not fresh vegetables. Just because a few yuppies in the media do something doesn't mean the rest of America does.

Second of all, these publicity stunts where they use "drones" to deliver products from Amazon or pizzas from Dominos are just that - stunts. They're not drones in the sense that they are autonomous vehicles, but rather just radio controlled helicopters that fly products for short distances for the media cameras. This is not a practical way of delivering anything.

In case you missed it, there's something called lawyers in this country and something called liability. And already drones are falling out of the sky and injuring people. So you can only imagine what would happen if hundreds of thousands of drones were going around neighborhoods delivering packages and pizzas and fresh kale and landing on Little Billy who's playing on the sidewalk and gouging his eyes out.

The other thing that we have is something called weather which you may have noticed recently in the form of hurricanes. But even in non-hurricane situations, we do have high winds which often make it impossible to fly drones. Rain and snow and hail are things that would ground drones on a regular basis and make them impractical for delivering food or packages or whatever. It's just a fantasy that's really not going to happen anytime soon., if ever.

But the other half equation - this idea that everyone wants their food delivered - is somewhat overstated. Now granted, as I noted in my pizza delivery posting, I paid my way through college partially by delivering pizzas. And I realized while doing that job, that America's appetite for convenience food is pretty much bottomless. And it was ironic that as a young man struggling to work my way through college, I would be accepting tips from other students who were borrowing money using student loans to pay me. They made stupid choices and I make smart choices. And likely they're still paying off their student loans. But I digress.

It does beg the question, though, where are these delivery companies going to get an endless army of underpaid plebes who will work for peanuts delivering food? I guess Uber has shown us that people will do anything for a buck, but with record low unemployment rates, even they might find themselves running short on drivers - and by the way, the only way they attract drivers is by overpaying them - Uber loses money on each and every ride. But again, I digress.

As I've noted in number of postings, using a restaurant as your kitchen is usually a bad idea, amplified by a factor of three when you're using delivery food as your kitchen. And yet the number of takeout, carryout, takeaway, and delivery options has exploded in recent years. Not only are restaurants delivering food to customers, but third-party companies using "apps" are offering to deliver food even from restaurants that don't offer delivery.

Delivering groceries is really nothing new. I recall when living in Washington DC in the 1990s that Giant foods started a program called Peapod that would deliver food to your door. Most of us were skeptical at the time about this, as picking and choosing food is a very personal thing. Some friends of mine have used the service and said that the selection of food was good. One would think that they would try to send you the wilted lettuce and dented peppers but apparently this is not the case.

And while those home grocery delivery services have been in business for decades now, they've never really exploded to the point where they've supplanted in-store shopping. They work very well for people who claim to be "too busy to shop" or for shut-ins or other people are unable to get out of the house. As a mainstream form of retail, it doesn't seem that home delivery of food is getting ready to take over.

Of course, I could be wrong about this. Faith Popcorn, the futurist and prognosticator, predicted that in the future we would all resort to "cocooning" - where we would never leave our homes. And while Ms. Popcorn has been wrong about an awful lot of things, maybe she was right about this. This year the movie industry is tanking as people are not going to the theaters to see the latest Blockbusters. When people have 60" or 70" flat screen TVs and home theaters it's not hard to see why. Going to the movies has become an arduous task. You go there, pay through the nose to see a movie, and pay through the nose for popcorn and a soda pop and then have to sit with a bunch of noisy teenagers and people who are texting or otherwise being disruptive. And then of course there have been the celebrated instances of violence in movie theaters which is enough to scare older people away.

So many of us don't even leave the house anymore. Throw in the fact that many of us work from home, and it becomes very scary. So maybe there are legs in this food delivery thing as we become an agoraphobic nation and basically barricade ourselves in our homes, interfacing only with the UPS man and the mailman, or perhaps some lifeless drone hovering in front of our door.

But even if we assume that there is legs in this thing, there are way too many people in this space and the values being pitched for these home delivery services are crazy. We are being told the companies that deliver food to your door have a greater market capitalization than Ford Motor Company which actually makes things, sort of.

And if you think about it, there is really no barrier to entry in the home food delivery market. This is not a patentable or protectable technology, indeed it is not even a technology. Delivering stuff has been around for a long time. In fact my very first job at age 13 was delivering stuff - newspapers. And it wasn't but a few years later that I was delivering pizzas. And as I noted, decades ago grocery stores started delivering groceries, and they even did so in the Mayberry RFD era for the shut-ins of that time.

So yes, I am little skeptical about the financial press hyping food delivery to your home as some new "technology" that's going to take over and is worth billions and billions of dollars. It just doesn't make any sense. It's a labor- and cost-intensive business. And the supply of mindless (human) drones who will deliver food for minimum wage is shrinking fast. It has to be managed very carefully in order to be profitable at all. People are not going to pay much of a premium to have their food delivered to home before they get up off their easy chair and just drive down to the grocery store which is probably less than a mile from their house.

Sadly, it looks like this food delivery thing is yet another speculative bubble.

Friday, September 22, 2017

In olden days, the most gruesome punishments were not meted out for murder or rape, but for counterfeiting. Why is this and what does it say about the future of cryptocurrencies?

One thing lost in all this discussion about cryptocurrencies is it one of the primary functions of the government is to control the currency. A lot of what is driving cryptocurrency enthusiasts is this political idea that somehow currency should be independent of governments. This is not an economic idea but a political one - and there is a difference between the two.

There are a lot of people who waste a lot of time and energy on conspiracy theory websites arguing at the Federal Reserve is somehow "taken away" their money. What they fail to realize that in order for someone to take away your money you have to first have to have some money and usually these people don't have two nickels to rub together in first place.

But it's another example of externalization - blaming all their troubles on the government or some other agency rather than looking inward and wondering whether they could have worked harder, made more money, gotten a better education, spent less and saved more. But of course, those are all hard things to do, and blaming the government is an easy thing to do and people tend to take the easy way out.

But one reason I think cryptocurrencies will eventually fail is that governments are very protective of currencies, and they're not going about to let some made-up currency take over. And if you look at the history of money, you will see this has always been the case.

In the days of the kings and queens and crowned heads of Europe, the penalty for counterfeiting currency was death. And by death I don't mean a simple hanging or beheading, but usually a gruesome death such as drawing and quartering, where the person would be tortured for everyone to see and then trampled into the ground. The King was deadly serious about controlling the currency and people trying to spoof the currency were basically trying to undermine society as a whole.

Not much has changed since then, although we tend to be a little more forgiving in terms of counterfeiters. We still pursue them with vigor, but we no longer draw and quarter them.

Cryptocurrencies provide no benefit to governments and thus goverments have no incentive to support them or even allow them to exist. As they allow for money laundering and transfer of money for illegal purposes, they work against government interests. In recent years we've seen how things like offshore accounts and numbered Swiss bank accounts have been pierced, one after the other, in order to track down tax cheats and other illegal activities. The era of anonymous banking appears to be coming to an end.

Cryptocurrency would seem to be bucking this trend and facing a strong headwind. In an era where we are trying to track down terrorists and prevent money laundering, it would seem to cryptocurrencies are setting themselves up for a fall.

What is driving the cryptocurrency boom is not logic but emotion. First of all, as I alluded to above, there are those people who believe that somehow the government should not control the money supply which is, of course, an emotional argument. So they have a lot of emotion invested in cryptocurrencies because they believe in things like "Sovereign Citizens" and that the Federal Reserve is out to get them. These are not rational thoughts.

The second group of dreamers are people seeing these cryptocurrencies shoot up in value and thinking to themselves, "Gee, I'm missing out on the big opportunity here, I could be making millions of dollars like that guy they talked about in the paper!" So they go out and buy a new crypto-currency thinking that they're going to be the ones to make a lot of money. But again, it is sort of like buying gold - you can make a lot of money if you bought it low and sold it high, but once it's published in the paper that it's going up, it's probably too late to get in on the gig.

The third and smallest group of cryptocurrency users are people are actually using it to transfer currency for one place to another, usually for illegal means. For example drug traffickers might use it to transfer funds or arms dealers might use it to transfer funds. It is not clear, however, how much of the trading in cryptocurrency relates to actual monetary transactions and how much of it is mere speculation by people buying and holding the currency thinking it'll go up in value. The people engaging in transactions are keeping their cryptocurrency for only the few milliseconds that it takes to go from one exchange to another (well, that and the minutes it takes to blockchain verify), where they are converted to local currency so the end user can actually spend it. The people using it as a means of exchange are at little risk for losing their money, as they don't leave their money in the cryptocurrency for very long.

In short, we have a speculative bubble, driven by fear and greed. The fear is that people think they're missing out on something and if they don't invest in this they'll lose big and lose their one opportunity in life to make $1,000,000. And the greed is the flip side of that buying and holding on to something they think is going to keep going up in value when historically, cryptocurrencies have been well demonstrated to be highly erratic and unstable.

And who knows, maybe governments will go back to drawing and quartering again.

Thursday, September 21, 2017

Trader Joe's is a fun place to shop, and their prices are far lower than that of Whole Foods and other upscale gourmet food stores. And of course, they are home to the Infamous "Two Buck Chuck" line of inexpensive wines, which are now pushing $4.

Some of their other products are not such a bargain. For example their beers are very interesting to look at but very expensive to buy. They have a lot of obscure microbrews which probably are very good but they often cost $3 or $4 a bottle which is kind of ridiculous. I'm not sure why they can't have their beer selection as inexpensive as their wine selection.

Trader Joe's is also a very small market if you think about it, and most of their products are packaged foods, which ironically have fallen from favor in the general marketplace. Trader Joe's gag is that they use house-branded products only, rather than brand names. Some Trader Joe's fans have gone online and tried to figure out who actually makes these house=branded products by using things like recall notices which list the same product under different brand names.

Trader Joe's uses this kitschy Polynesian theme to imply that they are importing most of their goods, although some of the goods are actually made here in America and just re-branded with her own Trader Joe's name. And many of these products are very good and are reasonably priced. Other things are not such bargains and I think they are counting on you buying some of the more expensive items to offset the loss leaders.

Since they don't have a butcher or deli, their packaged meats are somewhat expensive. I generally steer away from their organic deli, as it is usually twice the price of deli meats in other grocery stores. Their cheeses are no particular bargain either.

But what aggravates me is that Trader Joe's seems to be very fond of putting a lot of sugar in a lot of their products - where sugar is not needed. Granted, they use cane sugar instead of high fructose corn syrup which most other manufacturers of packaged goods use. But oftentimes we buy a product from them that seems to be ruined by an overly generous amount of sugar. Sometimes sugar is the first ingredient on the label or second or third.

For example, I just opened a jar of roasted red pepper spread. Roasted red peppers don't contain a lot of calories and they have a very rich and smoky taste. That is, unless you lace them with sugar. The third ingredient after red peppers and eggplants is cane sugar in the Trader Joe's spread, raising the calorie content and also changing the flavor from smokey and savory to sweet and bland.

Similarly, a garlic and onion chutney was somewhat short on garlic and onion and very heavy on cane sugar. In fact, it was the first ingredient. Now granted, chutney is supposed to be sweet and I understand that, but it could have used a lot more garlic in a lot less sugar.

The packaged foods at Trader Joe's are akin to what we saw on the IGA supermarket in the 1960s, at least in terms of sugar content. And yes, they do have a lot of cookies and sugary cereals as well. Healthy eating this ain't.

I'll still continue to go to Trader Joes for various items which can't be found elsewhere and are also good dargains. However in the future I'm going to read the labels more carefully as some of the products have ended up being somewhat disappointing due to the sugar content.

But they know their market, and I guess the typical Trader Joe's customer wants sweet not savory. Sort of like the vegetarian aisle at Wegman's - all candy!